How Do You Explain Housing Policy?

The Union Tribune’s commentary section on April 24 offered two opposing views of increased density. The author opposed to density, a 42-year resident of the seaside town, offered a strong rebuke of increased density. He argued that new housing would still be high priced. This made it clear how difficult it is to explain the complexities of building middle income housing – both rental and for sale.

In a way this author was correct. New homes in Encinitas will be priced well above what an average middle-income household can afford. What the author missed is that housing is a region wide ecosystem. What happens in one end of San Diego County does impact the rest of the region. This made it clear to me how hard it is to describe to the lay person that our housing policies need to have a region-wide approach. There are two issues to consider.

A home builder, apartment developer, landlord or someone selling their home does not set the price. We would like to think we do, but we don’t. The market does. If ten people want to rent one available apartment the price will go up. Conversely if after a month on the market there are no offers to buy a home it is priced too high. We only need to look to the Great Recession to bear this out. Everyone in the industry, myself included, went to market at our pro forma prices only to chase prices down, down and down. As the market recovered it went the other way.

So how does this relate to Encinitas? Simple, people want to live there. The author of the UT article was spot on that any new housing in Encinitas will be expensive due to market demand. The issue that was missed is that Encinitas’ new resident will be moving from another home or apartment – likely outside of Encinitas.

While some people will move from other affluent coastal communities, others will not. As some leave lower-priced markets, those new residents’ former residence becomes available. This in turn opens up other, existing, more modestly priced units. A good way to think about this is the first car you bought. Probably it was a used car you bought in your late teens or early twenties. You may have wanted a new car, but that five-year-old Honda was both nice and an affordable alternative. The same happens with housing. The one difference is auto makers produce a lot of cars – and that keeps the used car market affordable. The shelter industry (homes and apartments) does not produce a lot of “product” so the price of existing – or new – housing is a lot less affordable.